China announced in late May a long-awaited restructuring of its telecom industry that will whittle its six state-owned network operators down to three full-service carriers offering both fixed-line and wireless services. The move is seen as paving the way for the issuance of third generation mobile technology (3G) licenses.
Shares of industry leader China Mobile – regarded as the operator with the most to lose from the restructuring – were the first to take a hit in Hong Kong. The company’s stock fell 8.15% on May 26, its largest one-day loss in six years.
Further details of the telecom restructuring soon trickled down from the other major carriers. Most notably, China Unicom will acquire fixed-line player China Netcom in a share-swap worth US$23.8 billion. China’s other fixed-line network operator China Telecom said it would pay US$15.9 billion in cash for China Unicom’s CDMA wireless network.
In response to these large capital expenditures, investors sent the firms’ shares spiraling on their first day of trading since the restructuring announcement. Unicom took the biggest hit, dropping by 14% on June 3, while shares of Netcom and Telecom each shed 13%.
China Mobile’s plan to acquire the fixed-line assets of China Tietong has yet to be announced. But underscoring the tough road ahead for China Mobile was the news that sales of phones operating on China’s homegrown 3G technology TD-SCDMA – for which China Mobile is expected to receive a license – have reached a lackluster 3,000 units since the start of commercial TD-SCDMA trials.